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An Africa invisible to Blackstone is winning back investors

12th February 2019

By: Bloomberg


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The African investment roller-coaster shows just how hard it has been to make bets on the continent pay off.

After two years of declines, the region had inflows of foreign direct investment last year, thanks to a revival of interest in South Africa and a more stable environment in Egypt.

Yet, foreign interest has been fickle, underscoring the difficulties for policy makers to attract investors for the long haul. New York-based Blackstone Group is scaling back in Africa after less than five years. Bob Diamond, the former Barclays chief, is turning his attention elsewhere after six years of struggle to get his banking venture off the ground.

“Over-sized bets, misunderstandings about the scale and nature of customer demand in sub-Saharan African markets and too high expectations have led to mistakes,” said William Attwell, the head of sub-Saharan Africa research at DuckerFrontier in London, an adviser to multinational firms. “The opportunistic approach is an inadequate approach.”

The poorest continent and developing Asia were the only regions to attract FDI in 2018, according to United Nations Conference on Trade and Development estimates. With 54 countries making up an area bigger than the US, China, India, parts of Europe and Japan combined, trends are never uniform. Nigeria, which vies with South Africa as the region’s biggest economy, has had FDI declines for three straight years, thanks to endemic corruption, unpredictable policies, lower oil prices, and deep-seated poverty.

Estimated inflows of $40-billion in 2018 are a fraction of the $1.19-trillion that moved globally, creating a gap for those willing to navigate challenges ranging from regime changes and poor tax collection to foreign exchange and skills shortages. Some flows into the continent may have been hampered by last year’s collapse of Abraaj Group, once among the most influential emerging-market buyout firms. The Dubai-based company ran a near-$1-billion sub-Saharan Africa fund and investors are now seeking a new manager.


Washington-based Carlyle Group, which closed its $700-million sub-Saharan fund in 2014, is still doing deals on the continent even after being scorched by a Nigerian bank purchase, most recently investing $40-million in online travel agency That’s a different approach to its New York-based rival, Blackstone, which blanked Africa out of slides showing off its global footprint at a September presentation.

Paris-based Societe Generale, which has operations in 19 African countries, has ambitions to double its share of revenue from the region to 10 percent.

Renault SA is considering an assembly plant in Ghana, which last year overtook Nigeria, an economy six times its size, as the largest recipient of FDI in West Africa, joining Volkswagen and China’s Sinotruk International. Mercedes-Benz AG will invest €600-million in expanding its South African plant, while Dubai-based DP World is still looking at the continent even after having its stake in a port in Djibouti nationalised.

South African President Cyril Ramaphosa, who is on a drive to secure $100-billion in new investments to undo years of policy missteps and plundering under his predecessor, is finding that he doesn’t need to rely on traditional partners like the US or UK. Saudi Arabia has pledged to invest $10-billion in Africa’s most industrialized economy, and China $15-billion. The country’s first deep-water discovery announced last week by French oil major Total may also lead to a rush of activity.

“African governments have a lot more choice and FDI partners are changing,” said Ronak Gopaldas, a director at Signal Risk. India and Japan are showing more interest in the continent and U.S. investments led by the private sector aren’t tapering despite President Donald Trump’s “America First” push. “That’s creating opportunities and policy makers need to be strategic in who they partner.”


Progress toward the implementation of a free-trade accord and a greater emphasis on boosting Africa’s manufacturing industry will lead to an acceleration in FDI, UNCTAD said. South Africa took the chunk of FDI to sub-Saharan Africa in 2018, grabbing an estimated $7.1-billion from $1.3-billion the prior year. Nigerian investments slid 36% to $2.2-billion, although new oil and gas projects could lead to a recovery this year. Ethiopia, despite a 24% fall in investment to $3.1-billion, kept the top FDI spot in East Africa, it said.

While the outlook for 2019 is slightly more positive, driven by steady increases in consumer demand, government spending and investment, there are still risks if the global economy stalls, said Attwell of DuckerFrontier. Uneven growth also means companies need to stay focused, with the biggest opportunities to capture consumers concentrated among lower-income earners in countries with tepid inflation, he said, highlighting Kenya as receiving a lot of investor interest.

“We’re on an indelible march for Africa,” said Stephen Bailey-Smith, an investment strategist at Global Evolution Fonds, who has been tracking emerging markets for more than 30 years. “There is no shortage of interest in expanding on the continent.”

Edited by Bloomberg



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